Sunday, July 30, 2006

Problems with Low-income Housing Mortgage

Last week we went to three banks, BRI, BTN, and Bukopin, to see the possibility of them providing finance for low-income housing. BRI has heavy emphasis on financing small and micro businesses, BTN on housing/property mortgages, and Bukopin on cooperatives.

Here are several issues discussed:

A bank complained that the government doesn’t have vision on how we should deal comprehensively with the problem of low-income housing needs, while many local governments are only interested in projects from which they can take advantage.

They also said it may be interested in financing such projects if the government provides two things: legal land titles (new, large quantities of subdivided land), with basic infrastructure (the most important being roads, electricity, and water)

Another bank raised the issue of insurance/guarantee funds and control over subletting.

They said they can provide financing for corporation/enterprise’s workers housing, and for ‘solid cooperatives’ (which they need assess first).

Another bank complained about the lack of legal enforcement for those who default. They said that there have been too many cases where if someone is allowed to stop payment, then others will join.

My conclusion so far is that there is a possibility of mobilizing commercial banks to play a role in upgrading and preventing slums. However, the government will need to play an important role in providing the right incentives (not everything can be privatized, of course!). Also, there needs to be better management: both for the community institutions/cooperatives who apply for housing loans, and for the people who manage and maintain such developments.

3 comments:

awe, well, here in america this is how we handle 'low income housing' ... we don't. we wait, and wait and wait until the people are old enough, the place is scuzzy enough and it is cheap enough, and then banks like Bank of America ear-mark billions of dollars to purchase neighborhoods. they tear down what they buy and build new housing ... for the new generation that thinks living in a 'historic' neighborhood is cool ... never knowing the history of the neighborhood or the plight of the people who lived there before them ... but that's how america is dealing with 'low income housing' ...

they call it 'reclaiming' or 'regentrification' or worse yet, an 'empowerment zone.' as sad as it is, its where we are.

Anyways, back to low income housing, we're trying a new approach to mobilize banks to finance it and the gov't to prepare the incentives. Don't know if it'll work, but given how the poor has been very prudent in repaying loans, we think there's a good chance. In the past (indonesian) govts have either provided too much (but not sustainable) or nothing at all.

Hey, I once worked with UCLA, and they have developed several online tools aimed for low-income groups (in L.A. and California) to see how their neighborhood is doing, and how they can find opportunities to do neighborhood improvements.

muli, i hope someday in the near future our paths cross somewhere....anyway, for financing institions, non performing loan (npl) is one of the key indicator to make decision & policy....for low-income segment..that number would be expected higher (?) which is not attractive to the business...well, i dunno...